PROVIDENCE — In a scathing report commissioned by the largest state employees union, national financial industry critic Edward “Ted” Siedle accuses General Treasurer Gina Raimondo of selling out Rhode...

PROVIDENCE — In a scathing report commissioned by the largest state employees union, national financial industry critic Edward “Ted” Siedle accuses General Treasurer Gina Raimondo of selling out Rhode Island’s public workers and retirees for an “opportunity to enrich herself and her hedge fund backers.”

The report, unveiled Thursday afternoon at the headquarters of Council 94, American Federation of State, County and Municipal Employees, is titled, “Rhode Island Public Pension Reform: Wall Street’s License to Steal.”

“It happened when Gina Raimondo, a venture capital manager with an uncertain investment track record of only a few years — a principal in a firm that had been hired by the state to manage a paltry $5 million in pension assets — got herself elected [general treasurer] … with the financial backing of out-of-state hedge fund managers.

“In short, the foxes (money managers) had taken over management of the henhouse (the pension),” the report says.

Democrat Raimondo, a likely candidate for governor in 2014, had this to say about Siedle’s “innuendo-filled” report: “I think we should see it for what it is: a political attack paid for by opponents of pension reform.”

Added Raimondo spokeswoman Joy Fox: “The biggest innuendo is the false accusation that the treasurer is using her position to enrich herself or that the state pension fund is not well-managed. These false personal and political attacks are red herrings intended to undermine pension reform.”

In his 105-page report, Siedle alleges multiple potential and actual violations of state and federal law and repeatedly calls on “law enforcement and securities regulators” to investigate.

He accuses Raimondo of “misleading the public as to fundamental investment matters, such as the true costs and risks related to investing in hedge, private equity, and venture capital funds … understating the investment expenses and risks … [and] misrepresenting the financial condition of the state of Rhode Island to investors.”

“In our opinion … an investigation by state or federal securities regulators would reveal intentional withholding of material information and misrepresentations regarding state pension costs,” he wrote.

Among his overarching conclusions: “The Treasurer has emerged as the leading national advocate of a disingenuous form of public pension ‘reform’ which involves slashing workers’ benefits and thwarting public access to information regarding the riskiest of pension investments while, in secret, dramatically increasing the risks to retirement plans and the fees they pay to Wall Street.”

“In summary, the likelihood that any meaningful COLA will ever be paid in the future under the new statutory scheme is remote, a fact which has not been shared with workers and retirees.”

Raimondo

defended the hedge fund investments as a way to mitigate potential losses in any future economic downturn.

“The fact is, this pension system is healthier and has less risk … and delivered an 11-percent return last year, net of fees and expenses. … If performance lags, we’ll make changes. But the facts now suggest the strategy is doing what it is supposed to do,” she said.

Added Fox: “The City of Providence … has also suspended cost-of-living-adjustments, has a higher percentage of its pension fund invested in hedge funds and publishes less information than the state about the fees, investment portfolio, and investment commission actions. … [But] this isn’t about investment strategies, it’s about attacking the treasurer and pension reform.”

Raimondo was the architect of the sweeping 2011 pension overhaul, passed by the Democrat-controlled General Assembly to address what was seen as a severe pension-funding crisis. The overhaul raised the minimum retirement age, suspended annual cost-of-living increases and replaced the state’s defined-benefit pension with a hybrid that includes a 401(k)-style plan.

Council 94 is among the public employee unions that brought a lawsuit seeking to overturn the pension overhaul. The case is pending in Superior Court.

The Siedle report echoes criticism that Siedle, a former federal securities lawyer and investment banker, lobbed at Raimondo earlier this year in a series of online columns for Forbes magazine.

In those columns, he called Raimondo’s decision — approved by the state Investment Commission — to put $1 billion of the state’s $7.6-billion pension fund into hedge funds a “blatant Wall Street gorging,” given the risks, high fees and lack of transparency in the industry.

According to Siedle, his company — Benchmark Financial Services Inc. — was hired May 30 and paid $20,000 by Council 94 to “provide a preliminary expert forensic review” of the investments made on behalf of the Employee Retirement System of Rhode Island.

“We were also asked to examine whether the Treasurer’s so-called reform agenda was actually enhancing the security and sustainability of ERSRI and the true costs and risks of the sweeping changes she has implemented.”

He also delved into Raimondo’s personal gains from her blind-trust holdings in what Siedle describes as “two illiquid, opaque venture capital partnerships she formerly managed at Point Judith Capital,” in which the state pension fund has a $5-million investment.

The state has paid Point Judith $767,353 in management fees since 2007.

Raimondo derived between $201,000 and $500,000 in personal income last year from the “Raimondo blind trust” in which she placed those holdings, according to her latest financial disclosure filing.

Siedle raised conflict-of-interest questions about the extent of the state’s rights, as a limited partner, in Point Judith “investment decisions … the exercise of which may conflict with her financial interests.”

He also questioned whether Raimondo as a “Point Judith insider … may have been granted special rights more favorable than those granted to the state,” and “a share of the incentive allocation, management fee or other amounts earned by the general partner or its affiliates.”

Raimondo said Thursday the answer to both questions is no.

“Ironically, the Blind Trust scheme she proposed to the Ethics Commission coupled with her nondisclosure policy … has resulted in only the public being ‘blind’ as to the Point Judith II fund,” Siedle wrote.

Siedle said the treasurer’s office charged about $5,000 for records, but was unwilling to provide “fundamental investment information … such as the level of investment advisory, performance and other fees paid for money management.”

He labeled this a violation of the state’s Open Records Law, despite Raimondo’s claim “the state is contractually obliged” to let certain money managers decide what “supposedly proprietary information” it can release.

He also challenged the core argument for investment of public-pension dollars in hedge funds.

Of the $70 million in investment fees the state paid last year, $45 million went to 18 hedge funds.

While Raimondo touts the relative “protection” that hedge fund investments provide, Siedle said he obtained “offering memoranda” that “prominently warn that an investment in a hedge fund is speculative, involves a high degree of risk, and is only suitable for persons who are willing and able to assume the risk of losing their entire investment — hardly an appropriate investment for a public pension plan.”

Raimondo said Siedle seized on “legal boilerplate” to draw attention to the inherent risks of investing public pension money in a hedge fund, but said “you could lose all your money” investing in the Standard & Poor’s 500, too. She cited the state’s loss of close to $2 billion in pension fund value in the 2008-09 market crash.

“All of this, by this guy, Siedle, is a smokescreen to try to scare people and to try to turn the clock back on pension reform,” she said.

Council 94, which represents 8,000 active and 2,500 retired state and local workers in Rhode Island, announced plans to submit Siedle’s report to the Securities & Exchange Commission “with a request for further investigation.”

Council 94 president J. Michael Downey said: “We are not personalizing this at all. … We believe this report shows the pension fund is not being soundly invested.”